The Grow­ing Pains of Pot Pay­ments

The hazy le­gal­ity of mar­i­juana is mak­ing it hard for le­gal dis­pen­saries to ac­cept tra­di­tional pay­ments. But that doesn’t mean it has to be a cash-only busi­ness.

ISO & Agent - - INSIDE 09/10.2017 - BY SARAH WYNN

Le­gal cannabis sell­ers take pains to ad­here to lo­cal laws, but they are still seen as high-risk mer­chants. This means many of them must con­sider cre­ative al­ter­na­tives to tra­di­tional credit and debit card ac­cep­tance.

Though recre­ational pot is le­gal in a num­ber of U.S. states, big banks don’t want to work with cannabis sell­ers. And that is un­likely to change any­time soon. Part of the is­sue is reg­u­la­tion — most banks are averse to mar­i­juana’s hazy le­gal foot­ing — but a grow­ing num­ber of work­arounds can help make these busi­nesses less cash-based. The prob­lem is these work­arounds aren’t as seam­less as sim­ply pay­ing by credit or debit card at any other store.

“We’re in a grey area and ev­ery­body will have to deal with that,” said Eve­line Dang, vice pres­i­dent at Can­na­pay, a ven­dor to the le­gal cannabis in­dus­try. “In terms of ser­vice providers, it’s our job to pro­vide mer­chants with the right tools and sys­tems and so­lu­tions that they will use to make sure they use them prop­erly to be com­pli­ant in ev­ery way pos­si­ble.”

Can­na­pay is part of an emerg­ing cat­e­gory of providers im­ple­ment­ing cre­ative ways to make cannabis pay­ments seem more dig­i­tal than they ac­tu­ally are. The op­tions in­clude cash­less ATMS (which ini­ti­ate trans­fers when a cus­tomer in­serts a debit card) and e-checks.

The draw­back of these sys­tems is that point of sale tech­nol­ogy isn’t de­signed to in­ter­act with them, mak­ing im­ple­men­ta­tion of­ten seem like as­sem­bling a mas­sive jig­saw puzzle.

“POS sys­tems typ­i­cally are the core of the busi­ness with mer­chant pay­ments, but now the way that POS sys­tems and pay­ment sys­tems work is that it’s like a work around so­lu­tion,” Dang said.

When a cus­tomer makes a pur­chase, it isn’t di­rectly con­nected to a pay­ment sys­tem. So the mer­chant has to go into the POS sys­tem and man­u­ally con­firm that the pay­ment was com­pleted. Since most banks don’t work with dis­pen­saries, the mer­chants have to write out their trans­ac­tions to avoid dis­crep­an­cies.

Star­buds, a mar­i­juana store in Den­ver — where there are 158 ac­tive li­censed mar­i­juana stores alone — pri­mar­ily deals in cash, ac­cord­ing to Chris Mccul­lough, the store’s vice pres­i­dent of op­er­a­tions.

“At this point the in­dus­try has kind of got­ten used to it,” Mccul­lough said. “Of course we would enjoy to have credit card sys­tems or a way to process them in an eas­ier fash­ion.”

Star­buds has an ATM in its store, and Mccul­lough said this is a less

ex­pen­sive al­ter­na­tive to the more in­ven­tive work­arounds (it is not a client of Can­na­pay).

A cash­less ATM that ac­cepts credit cards may seem sim­i­lar to the nor­mal credit card pay­ment process, but such sys­tems cat­e­go­rize the trans­ac­tion as a cash ad­vance — and charge fees ac­cord­ingly — be­cause even if the money moves dig­i­tally, it’s not con­sid­ered a di­rect pay­ment to the mer­chant. And if a bank is will­ing to work with a le­gal dis­pen­sary, it would likely cat­e­go­rize the mer­chant as high-risk, and ad­just its pric­ing to re­flect that.

“Right now there’s just not any credit card sys­tems that are ex­actly what you find in re­tail,” Mccul­lough said. “There’s ei­ther an ex­tremely high fee on the back end or it’s one of those cash­less ATM sys­tems.”

To ad­dress the se­cu­rity risk of han­dling cash, Star­buds has armed guards at each store and cam­eras cov­er­ing the area, and Mccul­lough said this sys­tem has pre­vented any is­sues with han­dling cash.

Mccul­lough pre­dicts the sta­tus quo will change even­tu­ally as pot bank­ing re­stric­tions loosen, and as ven­dors work to pro­vide a more clear ben­e­fit to the cus­tomer.

Other pay­ments com­pa­nies work­ing with the le­gal cannabis in­dus­try in­clude Baker, which pro­vides an e-com­merce or­der­ing process but re­quires in-per­son pay­ments; Global Pay­out, which sup­ports a closed-loop pay­ment card; and Tokken, which uses a blockchain to pro­vide record­keep­ing for le­gal mar­i­juana sales.

But even in more ma­ture mar­kets for le­gal­ized mar­i­juana, such as Am­s­ter­dam, there’s a stigma to be­ing in this busi­ness and mer­chants typ­i­cally find them­selves ob­scur­ing the na­ture of their busi­nesses when talk­ing to banks.

In the U.S., Dang pre­dicts smaller banks will be the most will­ing to work with cannabis sell­ers.

“I do see that trend since we do have some re­la­tion­ships with smaller banks, lo­cal and re­gional banks, and I do see them show­ing in­ter­est,” Dang said.

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